Weekly economic and financial commentary

Summary

Summary

United States: Economic Growth Remains on a Positive Trajectory, For Now

• During December, payrolls rose by 223K while the unemployment rate fell to 3.5% and average hourly earnings eased 0.3%. Job openings (JOLTS) edged down to 10.46 million in November. ISM manufacturing fell to 48.4 in December, while the services index unexpectedly dropped to 49.6. Construction spending increased 0.2% in November. The U.S. trade deficit narrowed to $61.5 billion in November.
• Next week: Small Business Optimism (Tue), CPI (Thu), Consumer Sentiment (Fri)

International: Fiscal Policy Has Brazil Off to a Rocky Start

• Enhanced government spending has the potential to place Brazil's sovereign debt burden on a more unsustainable trajectory. With Brazil's public finances already in a precarious position and Lula now officially sworn into office, concerns regarding a lack of fiscal discipline are starting to materialize and shake confidence.
• Next week: Mexico Inflation (Mon), Brazil Inflation (Tue), Central Bank of Peru (Thu)

Interest Rate Watch: Clear Message from December Minutes: Higher Rates for Longer

• The minutes from the Fed's latest policy meeting in December were released on Wednesday and highlighted a mildly-hawkish to neutral tone from Fed officials headed into last month's meeting. What stands out to us is the Fed's direct communication: Don't underestimate its reaction function. Expect rates to remain higher for longer.

Credit Market Insights: The Housing Market is Collateral Damage

• As the Fed continues its inflation fight, elevated mortgage rates have crushed affordability for potential homebuyers. The Mortgage Bankers Association (MBA) reported that refinance mortgage applications fell 86.6% year-over-year in the last week of December, and applications for purchase were down 42.4%. While home prices have started to slide, we do not expect price declines as severe as the housing bust.

Topic of the Week: House Arrest: What a Perilous Speaker Vote Means for the Budget

• The U.S. House of Representatives continues its quest for a speaker. On Tuesday, the chamber went to a second ballot for the first time in a century after Representative Kevin McCarthy (R-CA) fell short of the votes needed to secure the speaker position.

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Summary

United States: Payrolls Beat Expectations, but Signs of Moderation on the Horizon

• Total payrolls rose by 263K in November, with the unemployment rate holding steady at 3.7% and average hourly earning rising by 0.6%. Personal income and spending increased 0.7% and 0.8%, respectively, in October, while the core PCE deflator increased 0.2% (MoM) and 5.0% (YoY). The ISM manufacturing index fell to 49 in November, while construction spending slipped 0.3% in October.
• Next week: ISM Services Index (Mon), Trade Balance (Tue)

International: Is This the Peak?

• There have been recent signs that inflation might have peaked in some countries. In November, Eurozone price pressures cooled for the first time in over a year, as headline CPI slowed to a 10% year-over-year rate, from 10.6% in October. In addition to the Eurozone, Australian inflation data also showed an unexpected softening in price pressures. In October, headline CPI receded to 6.9% year-over-year.
• Next week: Reserve Bank of Australia (Tue), Bank of Canada (Wed), Mexico CPI (Thu)

Interest Rate Watch: FOMC Set to Hike by 50 bps on December 14

• Fed Chair Powell indicated in a speech this week that the FOMC likely will hike rates by 50 bps, instead of its recent pace of 75 bps, on December 14. But Powell also suggested that rates need to go even higher and remain in restrictive territory for quite some time.

Credit Market Insights: The Beige Book Brings A Mixed Bag

• Economic activity was slightly up on balance. Employment continued to grow and prices continued to disinflate across most regions.

Topic of the Week: China Inching Toward a Reopening?

• While our base case scenario remains unchanged in that we continue to believe Zero-COVID will remain the overarching policy in China, we do recognize that authorities have started to ease restrictions and further action toward reopening could be taken going forward.

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Summary

United States: Even with Encouraging Inflation Developments, Economic Resilience Continues to Challenge the Fed

• In line with last week's CPI performance, the headline PPI increased 0.2% sequentially, two-tenths below expectations. The resiliency of the U.S. consumer was also on display, as total retail sales increased a stronger-than-expected 1.3% in October, boosted, in part, by a 1.3% jump in motor vehicles & parts and a 4.1% rise at gasoline stations. Weakness continued in the housing market, which is clearly in recession.
• Next week: Durable Goods Orders (Wed), New Home Sales (Wed)

International: What's Going On with Global Inflation?

• This week, October CPI data were released for the U.K., Canada and Japan, highlighting diverging paths for inflation in each economy. In the U.K., headline CPI inflation rose to 11.1% year-over-year, with the electricity, gas and other fuels category up nearly 90% compared to last year. Meanwhile, headline inflation in Canada has receded from a recent peak, coming in at 6.9%, but underlying price pressures continue to intensify. Last, Japan's inflation is much more contained compared to the U.K. and Canada, although prices are elevated by recent historical standards. Headline inflation quickened to 3.7% in October.
• Next week: Australia PMIs (Wed), Eurozone PMIs (Wed), U.K. PMIs (Wed)

Interest Rate Watch: Yield Curve Inversion Deepens

• Various points of the Treasury yield curve have inverted this year amid the Federal Reserve's aggressive policy tightening cycle. The spread between the yield on the two-year Treasury and the 10-year Treasury notes first turned negative in the spring and has become even more inverted in recent months, reaching a new low of -68 bps at the close on Thursday of this week.

Topic of the Week: The Economics of the 2022 World Cup

• What is expected to be the most viewed sporting event in world history is back, as 32 nations compete in Qatar starting on Sunday for the 2022 FIFA World Cup. We take a look at the economics of Qatar as well as our own predictions for the tournament.

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United States: October prices give Fed ability to slow pace of rate hikes

• Relief in October inflation gives the FOMC the ability to slow the pace of rate hikes ahead. But make no mistake, the Fed’s job of taming inflation remains far from over. We still expect it to raise the federal funds rate 50 bps at its next policy meeting in December, and now look for the policy rate to reach a peak of 5.25% by March, 25 bps more than we previously forecast, due to near-term resilience in spending and labor market strength.

• Next week: Retail Sales (Wed), Industrial Prod. (Wed), Housing Starts/Existing Home Sales (Thu/Fri).

International: Mixed inflation trends from Latin America

• This week saw some mixed inflation trends from Latin America. Mexico’s October CPI slowed to 8.41% year-over-year and energy prices slowed along with fruit and vegetables prices. However, the core CPI quickened further, and as a result, we fully expect the Bank of Mexico to raise its policy rate by 75 bps points this week. In Brazil, October inflation slowed further to 6.36% year-over-year, with lower taxes and gasoline prices as key drivers of the deceleration in recent months.

• Next week: Japan GDP (Tue), China Retail Sales & Industrial Output (Tue), U.K. CPI (Wed).

Credit market insights: Consumer credit growth steadies as banks tighten lending standards

• Total consumer credit growth moderated in September, increasing by $25 billion in a step down from August’s $30 billion gain. The Fed’s quarterly Senior Loan Officer Opinion Survey, which generally covers the third quarter, found that banks have tightened their lending standards over the quarter and demand for most business and consumer loan types weakened.

Topic of the week: Election day 2022

• Election Day has come and gone in the United States, and although not every race has been determined, the broad contours of the election outcome have emerged. The most probable outcome appears to be a divided government, with Republicans controlling at least one chamber of Congress and the White House still safely in Democrats’ hands.

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Summary

United States: FOMC Still Has Cover to Focus on Inflation

• Employers continued to add jobs at a steady clip in October, demonstrating the labor market remains tight and the FOMC will continue to tighten policy. The size of the December rate hike depends on the incoming data. October payrolls do not move the needle much toward a 75 bps hike, and they give the Fed cover to continue to focus on inflation.
• Next week: Small Business Optimism (Tue), CPI (Thu), Consumer Sentiment (Fri)

International: Bank of England Hints at a Slowdown

• The Bank of England (BoE) raised its policy rate aggressively at this week’s monetary policy announcement, raising its Bank Rate by 75 bps to 3.00%. The increase matched the consensus forecast; however, there were also signals from the BoE that the pace of tightening will likely slow going forward.
• Next week: Brazil CPI (Thu), Mexico Rate Decision (Thu), UK GDP (Fri)

Interest Rate Watch: Will the FOMC Slow the Pace of Tightening in Coming Months?

• For the first time in this rate hiking cycle, the FOMC said that it would take into account the cumulative amount of tightening when deciding future monetary policy moves. Does a slower pace of tightening lie ahead?

Credit Market Insights: Raising the Bar: EU Lending Standards Tighten in Q3

• Last week, the European Central Bank (ECB) released its Bank Lending Survey for Q3-2022. Bank participants in the survey indicated that there was a net tightening of credit lending standards in the face of decades-high inflation and recession fears, with standards tightening for enterprises, home purchases and consumer credit.

Topic of the Week: Homeownership Rises Over the Year, but Affordability Challenges Persist

• The latest Quarterly Residential Vacancies and Homeownership report was released on Wednesday. The report shows that the U.S. homeownership rate was 66.0% in the third quarter, up 0.6 percentage points over the year.

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Summary

United States: Momentum Continues to Slow

• This week's data show that while the U.S. economy has remained resilient thus far, tighter monetary policy is certainly starting to impact some key sectors. Industrial production regained its footing in September, but there are signs of slower growth ahead, while regional manufacturing surveys support this loss of momentum. Meanwhile, the real estate sector has been significantly affected by rising interest rates, with total housing starts falling 8.1% in September. Peering ahead, the forward-looking Leading Economic Index points to a recession in the coming year.
• Next week: New Home Sales (Wed), Q3 Real GDP (Thu), Personal Income & Spending (Fri)

International: Robust Consumer Inflation, Subdued Consumer Spending

• This week saw more evidence on the international front of divergent economic trends—with consumer inflation remaining rapid and consumer spending staying subdued. Inflation surprised to the upside in the United Kingdom, Canada and New Zealand. Meanwhile, retail spending data were subdued in the United Kingdom and Canada. For now, rapid inflation remains a greater concern than slower growth for foreign central banks, and we anticipate further monetary tightening in the weeks and months ahead.
• Next week: U.K. PMIs (Mon), Bank of Canada (Wed), European Central Bank (Thu)

Credit Market Insights: ARMs Make a Comeback as Mortgage Applications Plummet

• The Mortgage Bankers Association (MBA) reported on Wednesday that mortgage applications for purchase fell 4.5% during the week ended October 14. The long skid has helped push application counts to their lowest level since 1997. With markedly higher financing costs squeezing demand for mortgages, there is one type of home loan that has made a comeback this year, the adjustable rate mortgage (ARM).

Topic of the Week: “Modest” Is the Word of the Day in a Mixed Beige Book

• From employment in New York to overall economic activity in Dallas, “modest” was the word of the day in the newest Beige Book released by the Federal Reserve. Modest growth was broad-based, manufacturing activity improved on net and demand for services remains strong. That said, the outlook continues to worsen.

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Summary

United States: Inflation Is the Name of the Game

• Thursday's highly anticipated Consumer Price Index report surprised to the upside. Headline CPI rose 0.4% in September, and core CPI increased 0.6%. Even with some easing on a year-ago basis, the details of the report suggest inflation still has plenty of momentum and remains broad-based.
• Next week: Industrial Production (Tue.), Existing Home Sales (Thu.), Leading Index (Thu.)

International: Increasing Signs of an Impending U.K. Slowdown

• This week's U.K. data offered increasing evidence of a slowing economy. August GDP unexpectedly fell 0.3% month-over-month and services activity dipped 0.1%, while industrial output dropped 1.8%. With GDP likely to also fall further in September, the U.K. economy is on course to contract for Q3 as a whole. The GDP data was not the only sign of softness, as labor market figures showed a decline in employment for the June-August period.
• Next week: China GDP (Tue.), U.K. CPI (Wed.), Canada CPI (Wed.)

Interest Rate Watch: CPI Keeps Pressure on FOMC to Be Aggressive

• If there were any question that the FOMC would not raise its target range for the fed funds rate by 75 bps at its next meeting on Nov. 2, those doubts were forcibly put to rest by the higher-than-expected CPI data this week.

Topic of the Week: China's Economy and the Start of the 20th National Party Congress

• Against a slowing growth backdrop, China will host its 20th National Party Congress starting this weekend. By most accounts, Xi Jinping, current general secretary of the Chinese Communist Party, will be named to a precedent-defying third term as head of the CCP.

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Summary

United States: Whatever It Takes

• As widely expected, the FOMC raised the target range for the fed funds rate by 75 bps for the third consecutive time. The housing market continues to buckle under the pressure of higher mortgage rates, while the Leading Economic Index has signaled a broader loss of momentum across the economy.
• Next week: Durable Goods (Tue), Consumer Confidence (Tue), Personal Income & Spending (Fri)

International: Bank of Japan's Policy Actions Offset Each Other

• Aside from the Fed, the central bank that caught the attention of market participants this week was the Bank of Japan (BoJ). As expected, the BoJ left monetary policy settings unchanged; however, the communication around the decision was widely interpreted as dovish.
• Next week: Central Bank Speakers (Mon-Fri), China PMIs (Thu), Eurozone Inflation (Fri)

Interest Rate Watch: Aggressive Fed Path Boosts Inflation-Fighting Credibility

• The FOMC delivered its third straight 75 bps hike and a hawkish message for rates going forward at its meeting this week. The FOMC now sees it likely the fed funds target range will rise to 4.4% by the of this year and 4.6% by the end of next year as inflation is expected to be more intractable than previously believed.

Credit Market Insights: Reading the Pulse of the Corporate Bond Market

• The Federal Reserve Bank of New York's Corporate Bond Market Distress Index (CMDI) tracks corporate bond market functioning using a variety of metrics from the market at large, including the investment grade and high yield markets. The latest release of the CMDI indicated that the corporate bond market was in good health through August.

Topic of the Week: Shot Across the Bow, Japan Intervenes Against Surging Dollar

• On Thursday, in a surprise move Japan's Ministry of Finance intervened in FX markets to strengthen the yen for the first time since 1998. The beleaguered yen has declined over 20% against the dollar this year, briefly hitting a 24-year low of JPY145.89 on Thursday after BoJ policymakers signaled they plan to keep monetary policy settings accommodative.

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Summary

United States: Expansion Not Yet Heading to the Gallows

• An increase in real retail sales by our estimates and a rebound in industrial production in July offered evidence beyond recent jobs data that the U.S. economy is not yet in a recession. That said, with new orders in the manufacturing sector slowing sharply and housing activity continuing to tumble, data this week did little to change our view that a downturn in the coming quarters will be hard to avoid.
• Next week: New Home Sales (Tue), Durable Goods (Wed), Personal Income & Spending (Fri)

International: Diverging Paths for Inflation in Canada and U.K.

• Headline inflation in Canada may be showing signs of cooling down. Overall CPI decelerated to a 7.6% year-over-year pace in July, driven by falling gasoline and energy prices. While inflation in Canada may have peaked in July, price pressures in the U.K. have not yet abated. Headline inflation surprised to the upside, reaching 10.1% year-over-year. We expect U.K. inflation to remain elevated for longer, as another sizable increase in electricity prices is planned for October.
• Next week: U.K. PMIs (Tue), Eurozone PMIs (Tue), South Africa CPI (Wed)

Interest Rate Watch: The Fed Still Has More Work to Do

• We continue to look for the Fed to hike the federal funds rate another 75 bps at its September 20-21 FOMC meeting and to follow that up with a 50 bps hike in early November and a 25 bps hike in December. After that, we believe the Fed will take a break and see how the rate hikes it has implemented so far affect the broader economy.

Topic of the Week: China's Renewed Slowdown Prompts Surprise Rate Cut

• The combination of COVID containment policies and a struggling property sector has led us to revise our annual GDP forecast consistently lower over the course of this year, and as of now, we believe China's economy will grow a little above 3%. We also believe risks are tilted toward even slower growth than we forecast, and July activity data released over the past few weeks reinforces that view.

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Summary

United States: Busy Data Week Shows Wobbling U.S. Economy

• Data released this week showed that U.S. economic growth modestly contracted in Q2. New home sales were yet another data release that pointed toward a cooling housing market. The FOMC continued its fight against elevated inflation with its second consecutive 75 bps increase in the federal funds rate.
• Next week: ISM Manufacturing (Mon), Trade Balance (Tue), Employment (Fri)

International: The Global Economic Outlook Dims

• Over the past several months, concerns about the global economic outlook have intensified, and predications of possible recessions around the world have become more widespread. As a result, we recently further downgraded our outlook and now expect global GDP growth of just 2.3% in 2022 and 1.6% in 2023.
• Next week: RBA Cash Rate (Tue), BCB Selic Rate (Wed), BoE Bank Rate (Thu)

Interest Rate Watch: FOMC Hikes by 75 bps and Indicates More to Come

• Not only did the FOMC raise its target range for the federal funds rate by 75 bps, which was widely expected, but it signaled that more tightening is likely. That said, the FOMC acknowledged the recent slowdown in economic activity.

Topic of the Week: Not Yet a Recession Way Down Inside

• Real GDP posted back-to-back declines in the first two quarters of 2022. While two consecutive quarters of negative GDP growth is one working definition of recession, it is not the official one. In a recent report, we unpacked the right variables to watch and introduced a new at-a-glance tool to get the next recession call right.

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Summary

United States: Housing Slump Underscores Rising Risk of Recession

• Higher mortgage rates continue to drag on housing activity. The NAHB Housing Market Index plunged 12 points to 55 in July. June brought a 5.6% drop in existing home sales as well as a 2.0% decline in housing starts. Initial jobless claims rose to 251K during the week of July 16. The Leading Economic Index (LEI) slipped 0.8% in June, the fourth straight monthly drop.
• Next week: Durable Goods (Wed.), Q2 U.S. GDP (Thurs.), Personal Income & Spending (Fri.)

International: ECB Exits Negative Interest Rates

• The ECB delivered a larger-than-expected 50 bps Deposit Rate increase, exiting its negative interest rate policy and taking the Deposit Rate to 0.00%. The other key policy interest rates were also lifted by 50 bps, taking the refinancing rate to 0.50% and the marginal lending rate to 0.75%.
• Next week: Japan (Tokyo) Inflation (Thurs.), Central Bank of Colombia (Fri.), Eurozone Q2 GDP (Fri.)

Interest Rate Watch: The FOMC to Deliver Another Jumbo 75 bps Hike

• The blistering June CPI report raised the chance that the FOMC could deliver a 100 bps hike at next Wednesday's meeting. However, with data since then showing the economy continues to cool and notable hawks signaling a smaller increase should be adequate, we look for the FOMC to hike a still head-turning 75 bps.

Credit Market Insights: Stronger Dollar Spells Potential Trouble for Emerging Market Debt

• Over the course of 2022, but particularly during the past few months, the U.S. dollar has broadly strengthened. Local currency depreciation could mean potential trouble for governments that have a sizable percentage of their sovereign debt denominated in U.S. dollars. As vulnerable countries struggle with potential repayment issues, economic growth across the emerging and developing world could slow sharply, while the probability of default could spike across the entire spectrum.

Topic of the Week: Power Struggle: European Heat Waves Strain an Energy-Starved Continent

• The second heat wave of this summer swept through Europe this week, extending as far north as the U.K. and causing wildfires in France, Spain, Portugal and Italy. The intensity of the heat wave, with temperatures reaching a record high of 104°F in the U.K., has upended life and further strained a continent already dealing with an energy crisis.

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Summary

United States: This Party Is Breaking Up Fast

• Signals of a slowdown are starting to flash across sectors. Business and consumer sentiment have faltered, real consumer spending has weakened, housing activity has stalled and business investment is downshifting in response. On the other hand, robust employment growth and solid gross domestic income suggest we are not in the hole just yet.
• Next week: Housing Starts (Tue), Existing Home Sales (Wed), Initial Jobless Claims (Thu)

International: U.K. Growth Surprises to the Upside, Bank of Canada Delivers a Super-Sized Hike

• U.K. GDP registered a gain in May, but some cracks in the economy may be starting to show, specifically with regard to the consumer sector. Elsewhere in the G10, the Bank of Canada delivered a super-sized 100 bps hike at its July monetary policy meeting, bringing the policy rate to 2.50% and signaling more rate hikes to come.
• Next week: U.K. CPI (Wed), Canada CPI (Wed), ECB Rate Decision (Thu)

Interest Rate Watch: Asset Inflation Is Already Being Curbed

• The Federal Reserve is continuing to reduce its balance sheet holdings of Treasuries and mortgage-backed securities (MBS), increasing the pace of the drawdown in September. However, the reduction of the MBS portfolio may prove to be difficult in the face of rising interest rates that have curtailed mortgage refinancing. We will also be on the lookout for liquidity challenges in the fall as the Fed's balance sheet is reduced.

Credit Market Insights: Record High for Monthly Auto Loan Payments

• The average monthly auto loan payment reached a record high of $712 in June with 12.7% of new car buyers paying at least $1,000 per month for their cars, according to Cox Automotive Inc. Ultimately, with peak inflation not yet behind us and a potential economic slowdown looming, household balance sheets may be further stressed by these large monthly payments.

Topic of the Week: Beige Book Heralds Slowing Growth, Inflation Fears, Recession Risk

• This week, the Federal Reserve released the Beige Book for its July meeting. Regional banks are describing situations seen across the country with some of the following language: slowing growth, inflation fears and even some risks of recession.

Read the full article here

Summary

United States: This Party Is Breaking Up Fast

• Signals of a slowdown are starting to flash across sectors. Business and consumer sentiment have faltered, real consumer spending has weakened, housing activity has stalled and business investment is downshifting in response. On the other hand, robust employment growth and solid gross domestic income suggest we are not in the hole just yet.
• Next week: Housing Starts (Tue), Existing Home Sales (Wed), Initial Jobless Claims (Thu)

International: U.K. Growth Surprises to the Upside, Bank of Canada Delivers a Super-Sized Hike

• U.K. GDP registered a gain in May, but some cracks in the economy may be starting to show, specifically with regard to the consumer sector. Elsewhere in the G10, the Bank of Canada delivered a super-sized 100 bps hike at its July monetary policy meeting, bringing the policy rate to 2.50% and signaling more rate hikes to come.
• Next week: U.K. CPI (Wed), Canada CPI (Wed), ECB Rate Decision (Thu)

Interest Rate Watch: Asset Inflation Is Already Being Curbed

• The Federal Reserve is continuing to reduce its balance sheet holdings of Treasuries and mortgage-backed securities (MBS), increasing the pace of the drawdown in September. However, the reduction of the MBS portfolio may prove to be difficult in the face of rising interest rates that have curtailed mortgage refinancing. We will also be on the lookout for liquidity challenges in the fall as the Fed's balance sheet is reduced.

Credit Market Insights: Record High for Monthly Auto Loan Payments

• The average monthly auto loan payment reached a record high of $712 in June with 12.7% of new car buyers paying at least $1,000 per month for their cars, according to Cox Automotive Inc. Ultimately, with peak inflation not yet behind us and a potential economic slowdown looming, household balance sheets may be further stressed by these large monthly payments.

Topic of the Week: Beige Book Heralds Slowing Growth, Inflation Fears, Recession Risk

• This week, the Federal Reserve released the Beige Book for its July meeting. Regional banks are describing situations seen across the country with some of the following language: slowing growth, inflation fears and even some risks of recession.

Read the full article here

Summary

United States: Payroll Growth Sizzles in June Despite Recession Fears

• June brought a strong 372K payroll gain, beating the consensus and calming recession concerns. The unemployment rate held at 3.6%. Total job openings remain highly elevated but fell by 427K to 11.3 million in May. The ISM services index edged down to 55.3 during June, marking a two-year low. The trade gap narrowed to $85.5 billion in May as exports rose at a slightly faster pace than imports.
• Next week: Consumer Price Index (Wed.), Retail Sales (Fri.), Industrial Production (Fri.)

International: Some Cracks in Canada's Economic Outlook

• The past week saw some underwhelming news from Canada. June employment unexpectedly fell by 43,200, and while the Bank of Canada's Business Outlook Survey reported solid sales over the past three months, it also signaled a slowing in sales going forward. We expect Canadian GDP growth of 3.9% in 2022, but growth of just 1.5% in 2023. In Scandinavia, Sweden's GDP rose in May, while Norway's mainland GDP fell. Finally, the Reserve Bank of Australia raised its policy rate 50 bps at this week's monetary policy meeting, as expected.
• Next week: U.K. GDP (Wed.), Bank of Canada Policy Announcement (Wed.), China GDP (Fri.)

Interest Rate Watch: Yield Curve Signals Recession on the Horizon

• The yield on the two-year Treasury note moved above the yield on the 10-year Treasury security this week. An inverted yield curve has historically been a reliable indicator of a looming recession.

Topic of the Week: Collapse Goes the Commodities

• The Commodity Research Bureau's All Commodities Index ended Thursday down 1.9% over the week, while Bloomberg's measure slid 1.6% over the same period. The slide has been broad-based, with major declines in products stretching from copper to soybean oil.

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Summary

United States: The Housing Market Begins to “Reset”

• Fed Chair Powell presented the Federal Reserve's semiannual Monetary Policy report to Congress this week. In his testimony, he acknowledged that tightening monetary policy in order to reduce inflation may result in a recession. Higher mortgage rates are weighing on home sales. During May, existing home sales fell 3.4%, the fourth straight decline. New home sales rose 10.7% in May, although are down 5.9% year-to-year.
• Next week: Durable Goods (Mon), Personal Income & Spending (Thu), ISM Manufacturing (Fri)

International: Global Trends of Slowing Growth, Elevated Inflation and Rising Rates Continue

• The Eurozone services PMI fell noticeably in June, signaling slower growth ahead. However, as inflation pressures intensify, we still expect the European Central Bank to raise interest rates in July. The Norges Bank delivered a hawkish surprise, raising its policy rate by 50 bps to 1.25% this week. Meanwhile, in Canada, solid retail sales and rapid inflation mean we now expect the Bank of Canada to hike rates 75 bps at its July monetary policy meeting.
• Next week: China PMIs (Thu), Japan Tankan Survey (Fri), Eurozone CPI (Fri)

Interest Rate Watch: SOMA Starts Up Quantitative Tightening

• This month, the Federal Reserve officially began implementing its balance sheet normalization plan as billions of principal payments on Treasury securities and agency mortgage-backed securities were not reinvested in the New York Fed's System of Open Market Accounts (SOMA).

Credit Market Insights: True Impact of Rising Mortgage Rates Remains to Be Seen

• Mortgage rates climbed again this week as Freddie Mac reported the average 30-year fixed-rate mortgage rose to 5.81%. The upshift in mortgage rates has fueled a rapid shift in the recently red-hot housing market.

Topic of the Week: Stanley Cup Finals: Colorado vs. Tampa Bay

• The Colorado Avalanche and Tampa Bay Lightning are facing off in the 2022 Stanley Cup Finals. The Avalanche lead the series 3-1 and have home-ice advantage in Game 5 where they will take on the Lightning at Ball Arena in downtown Denver.

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Summary

United States: Recession Risks Rise

• Last week's stronger-than-expected CPI print laid the groundwork for this week, sending markets into a churn and raising the risks of recession. We now look for the U.S. economy to experience a mild contraction in mid-2023. Economic data released this week add to evidence that the chances of a soft landing are fading.
• Next week: Existing Home Sales (Tues), New Home Sales (Fri)

International: Bank of England Raises Rates by 25 bps as Growth Unexpectedly Contracts

• The outlook for the U.K. economy may be starting to cloud, as the economy saw an unexpected contraction, with GDP falling 0.3% month-over-month in April. Against a backdrop of slowing growth and high inflation, the BoE delivered a 25 bps rate hike at its June monetary policy meeting, bringing the Bank Rate to 1.25%.
• Next week: Canada CPI (Wed), U.K. CPI & PMIs (Wed/Thurs), Eurozone PMIs (Thurs)

Interest Rate Watch: Treasuries Tumble as Yields React to CPI, Fed

• New economic data and aggressive Federal Reserve actions sent Treasury yields up sharply this week.Monday, in particular, was one of the most volatile days of the year for bond markets as yields spiked roughly 30 bps across most parts of the Treasury curve.

Topic of the Week: So What's Happening with Our Old Friend Supply Chains?

• There is still ample backlog to be chipping away at, but overall things tend to be gradually improving on the supply front. That doesn't mean we are out of the woods yet, as there are still mentions of supply chain disruptions among many industries, particularly in reference to lockdowns in China.

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Summary

United States: Prices Push Higher in May, Signaling Little Immediate Relief for Consumers

• Consumer price inflation continued to push higher in May, with the consumer price index rising more than expected and lifting the annual rate of inflation to a fresh 40-year high. Consumers continue to feel the pinch of higher prices, evident in the persistent deterioration in consumer sentiment. To date, households have demonstrated uncanny staying power in the face of inflation, but with little signs of immediate relief from prices, this will only become more challenging.
• Next week: Retail Sales (Tue), FOMC Rate Decision (Tue), Housing Starts (Wed)

International: European Central Bank Readies Rate Hike as Reserve Bank of Australia Delivers

• The European Central Bank (ECB) took another step this week on its path of policy normalization at its latest monetary policy announcement. The ECB said it intends to raise rates by 25 bps in July, perhaps by an even larger amount in September, and deliver a steady series of rate hikes over time. The Reserve Bank of Australia surprised markets with a larger-than-expected 50 bps rate increase, which we expect it will follow up with another 50 bps hike at its July announcement.
• Next week: U.K. GDP (Mon), China Retail & Industrial Activity (Wed), Australia Employment (Thu)

Interest Rate Watch: SNB and BoE Hold Policy Meetings Next Week

• We expect the Swiss National Bank to remain on hold next week, but we look for it to commence a tightening cycle later this year. We expect the Bank of England to hike rates by 25 bps on Thursday.

Credit Market Insights: Consumer Credit Is Up, Household Net Worth Is Down

• Consumer credit had yet another strong month in April rising $38.1 billion, a near-record increase bested only by the prior month's unprecedented surge. Meanwhile, household balance sheets slipped in the first quarter as household net worth declined for the first time since Q1-2020, when COVID initially struck.

Topic of the Week: Budget Deficit Shrinks…For Now

• Fiscal year 2022 is now nearly three-quarters complete, and the federal budget deficit has narrowed significantly. Our current forecast is for the federal government to incur a budget deficit of $900 billion in FY 2022. If realized, this would be a smaller deficit than the one that prevailed before the pandemic.

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Summary

United States: Economic Storm Clouds or Just a Brisk Inflationary Headwind?

• Nonfarm payroll growth exceeded expectations in May, with employers adding 390,000 jobs. The unemployment rate was unchanged at 3.6%, but labor force growth edged higher and wages rose only modestly. Most of this week's other reports also came in above expectations, with the ISM manufacturing index rising 0.7 points to 56.1 and factory orders posting solid, broad-based gains.
• Next week: Trade Balance (Tues), CPI (Fri), U. of Mich. Sentiment (Fri)

International: Hawkish Hike from the Bank of Canada, Mixed Data in the Emerging Markets

• The Bank of Canada delivered a 50 bps policy rate hike to 1.50%, and the accompanying statement was more hawkish than market participants expected. In emerging markets, data from China this week suggest the worst may be behind, as May PMI data revealed a modest uptick in sentiment. While China's economy is showing tentative signs of stabilization, Brazil is showing signs that activity is decelerating.
• Next week: European Central Bank (Thurs), Mexico Inflation (Thurs), Brazil Inflation (Thurs)

Credit Market Insights: Federal Student Loans Brought to the Forefront Again

• On Wednesday, the Federal Department of Education announced that it will discharge $5.8B in federal student loans. These targeted actions do not broadly effect American balance sheets or the macroeconomy—$5.8B in federal student loans is a small fraction of the $1.6T in total student loan debt.

Topic of the Week: The Growing Economic Influence of the LGBTQ+ Community

• Organized protests like the “Stonewall Uprising” have brought attention to the countless injustices that have been, and continue to be, inflicted on individuals identifying as LGBTQ+. The events that transpired 53 years ago were a pivotal moment in the long fight for equal rights. To commemorate Pride Month in 2022, we explore the growing economic influence of the LGBTQ+ community.

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Summary

United States: Signs of a Slowdown Begin to Emerge

• April brought a steep 16.6% decline in new home sales and a 3.9% drop in pending home sales, the latest signs the housing market is cooling down amid sharply higher mortgage rates. Personal income rose 0.4% during April, while personal spending increased 0.9%. Inflation continues to run hot. The headline PCE deflator was up 6.3% year-to-year, while the core measure rose 4.9%.
• Next week: Consumer Confidence (Tue), ISM Manu. & Services (Wed/Fri), Nonfarm Payrolls (Fri)

International: Mixed Fortunes for Europe's Economies

• This week's May PMI surveys offered the latest insight into how some of Europe's key economies are faring, and indicated varying fortunes across the region. The Eurozone PMIs reported a mild decline, suggesting a modest loss of momentum, though to levels that remain well within growth territory. For the United Kingdom however, the PMI surveys suggested the economy could suffer a sharper slowdown.
• Next week: China PMIs (Tue), Eurozone CPI (Tue), Canada GDP (Tue)

Interest Rate Watch: FOMC Minutes Show Another 50 bps Rate Hike Is Probable

• The minutes from the May FOMC meeting were released this week and offered additional evidence that a second consecutive 50 bps rate hike is imminent.

Credit Market Insights: Household Well-Being Strengthens in 2021

• This week, the Federal Reserve Board issued its Economic Well-Being of U.S. Households in 2021, a report which surveys the financial health and sentiment of U.S. adults and their families. Financial well-being among respondents reached its highest level since 2013 when the survey first began.

Topic of the Week: Biden Announces an Asia-Specific Strategy

• We unpack a few recent developments in terms of U.S. foreign relations this week, like the newly introduced Indo-Pacific Economic Framework, where things stand with trade policy more broadly and how there's a review under way of U.S. tariffs on China that likely won't lead to large changes to preexisting policy.

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Summary

United States: April Economic Data Show Resilient U.S. Economy

• U.S. retail sales topped expectations in April, while industrial production also grew more rapidly than economists expected. Data on housing starts, home sales and homebuilder sentiment, however, showed tentative signs of cooling.
• Next week: New Home Sales (Tue), Durable Goods (Wed), Personal Income & Spending (Fri)

International: U.K. and Canada Inflation Reach New Cycle Highs

• U.K. inflation surged to a fresh 40-year high in April, quickening to 9.0% and placing additional pressure on the Bank of England (BoE) to double down and tighten monetary policy. Inflation in Canada also reached a new high, but this time of “only” 30 years; headline CPI inched up to 6.8% year-over-year in April.
• Next week: Eurozone PMIs (Tue), U.K. PMIs (Tue), RBNZ Rate Decision (Wed)

Interest Rate Watch: Bond Yields Up Significantly in Many Foreign Economies

• The United States is not the only major economy in which long-term interest rates have risen significantly. For example, the yield on the two-year government bond in Germany has risen about 100 bps since the beginning of the year, while the comparable yield in the United Kingdom is up about 80 bps over the same period.

Topic of the Week: The Outlook for Corporate Debt in a Rising Rate Environment

• After nearly tripling from just over $4T at the turn of the century to about $12T today, non-financial corporate (NFC) debt is at an all-time high. With recent Federal Reserve rate hikes and likely more to come, we outlined some hypothetical scenarios to analyze future debt serviceability in the NFC sector considering rising rates.

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Summary

United States: Don't Look Down Yet

• Consumer price inflation may have peaked, but the climb down from here will not be free of obstacles. The CPI and PPI rose 0.3% and 0.5%, respectively, in April. Small business optimism stalled during the month, as owners are concerned about their ability to continue to pass on higher costs to consumers.
• Next week: Retail Sales (Tues), Industrial Production (Tues), Housing Starts (Wed)

International: Inflation Plague Continues in Emerging Markets

• Price growth is a global problem; however, inflation seems to be more of a problem across the emerging markets. With commodity prices still high and weak local currencies, most emerging market countries are experiencing above-target inflation.
• Next week: UK CPI (Wed), Japan CPI (Thurs), South Africa Reserve Bank (Fri)

Interest Rate Watch: Will Tighter Financial Conditions Lead to a More Dovish Fed?

• In the post-FOMC meeting press conference last week, Chair Powell indicated that financial conditions would need to tighten to help the Fed restore price stability. The Bloomberg Financial Conditions Index began to tighten early this year when FOMC members signaled that the committee would become more aggressive in battling inflation. This week, conditions tightened further to the least-supportive posture in two years.

Credit Market Insights: Consumer Credit Overdelivers for a Second Month

• Consumer credit grew by a record $52.4B in March as it more than doubled consensus estimates for the second month running. The surge was relatively well-balanced, with revolving credit—mostly linked to credit card spending—rising $31.4B, while nonrevolving credit climbed a slightly lower $21.4B.

Topic of the Week: Fertilizer Crunch Threatens to Drive Food Prices Higher

• Rising food prices continued to sting consumers in April as grocery prices and prices for food away from home rose 1.0% and 0.6%, respectively. A global supply shortage of chemical fertilizers may put further pressure on already strained food commodity markets.

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Summary

United States: 'Til the Medicine Takes

• The latest economic data suggest supply challenges worsened in April. Delivery times lengthened, and while employers continued to add jobs at a solid pace, the supply of labor weakened. Price pressure has remained elevated as a result. The FOMC raised its federal funds rate 50 bps this week at the conclusion of its policy meeting, and the incoming data for April reinforce our expectation for another 50 bp hike in June.
• Next week: NFIB Small Business Optimism (Tues), CPI (Wed), U. of Mich. Consumer Sentiment (Fri)

International: Reserve Bank of Australia Delivers Initial Rate Hike, BoE & BCB Continue Tightening

• Faced with concerns about high inflation, multiple central banks around the world tightened monetary policy this week. Notably, the Reserve Bank of Australia (RBA) raised its Cash Rate by 25 bps to 0.35%, citing a resilient economy with inflation that has accelerated faster and higher than previously expected, as well as progress toward full employment and wage growth. The Bank of England and Brazilian Central Bank also delivered rate hikes this week.
• Next week: Mexico CPI/Banxico Rate Decision (Mon/Thu), U.K. GDP (Thu), Russia CPI (Fri)

Interest Rate Watch: The First 50 bps Rate Hike from the FOMC in 22 Years

• At the conclusion of its meeting this week, the FOMC increased the target range for the federal funds rate by 50 bps to 0.75%-1.00%. The move was widely anticipated by financial market participants, but that does not diminish the fact that it was the first 50 bps rate hike from the Federal Reserve in 22 years.

Credit Market Insights: Monetary Policy Is Impacting Mortgages, Including Refinancing

• Freddie Mac reported on Thursday that 30-year mortgage rates reached 5.27%, 17 bps higher than the previous week and the highest level since 2009. After more than a decade of sub-5.0% mortgage rates, the past few months of expectation setting and quantitative tightening have already affected the mortgage market.

Topic of the Week: Shining a Light on the Rising Economic Potential of AAPI Small Business

• In commemoration of AAPI Heritage Month and Small Business Month, we highlighted some economic contributions of the Asian American and Pacific Islander community with a focus on AAPI-owned small businesses in a recent report.

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Summary

United States: GDP Head Fake Obscures Otherwise Intact Fundamentals

• In a jampacked week of economic data, Thursday's negative GDP growth print took center stage. The U.S. economy contracted at a 1.4% annualized rate in Q1-2022. The weak headline figure raises concern at first glance, but the details of the report suggest underlying demand remained intact.
• Next week: ISM Surveys (Mon & Wed), Trade Balance (Wed), Nonfarm Payrolls (Fri)

International: Bank of Japan Doubles Down on Easy Monetary Policy

• The Bank of Japan held its monetary policy stance steady at this week's announcement but, in a significant development, reinforced its pledge to cap any rise in Japanese bond yields. The central bank said it was prepared to buy government bonds in unlimited quantities to prevent a rise in yields. In other central bank activity, Sweden's central bank raised its policy rate by 25 bps and signaled multiple further rate hikes in the quarters ahead.
• Next week: China PMIs (Sat.), Brazil Selic Rate (Wed.), Bank of England Policy Rate (Thu.)

Interest Rate Watch: How Much Will the Fed Tighten Next Week?

• Despite the 1.4% annualized rate of contraction in Q1 real GDP, we look for the Federal Open Market Committee to raise its target range for the federal funds rate by 50 bps at next week's meeting. A 50 bps rate hike is completely priced into markets.
• We also look for the Committee to announce the commencement of balance sheet reduction, which would also act as a form of monetary tightening.

Topic of the Week: The Rise of Single-Family Rental Homes

• Housing affordability has been an increasing concern for potential homebuyers as scorching home price appreciation and rapidly rising mortgage rates have already pushed many buyers onto the sidelines. While homes are becoming increasingly difficult to afford for traditional homebuyers, a growing share of investor buyers have encroached on the market by purchasing and renting out single-family homes.

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Summary

United States: Higher Mortgage Rates Begin to Bite

• The sharp rise in mortgage rates appears to be slowing residential activity. Existing home sales fell 2.7% during March. Housing starts inched up 0.3% during March. However, single-family starts declined 1.7% during the month and single-family permits dropped 4.8%. The NAHB index fell two points to 77 in April. The Leading Economic Index (LEI) expanded 0.3% in March, reflecting slower-but-still positive economic growth.
• Next week: Durable Goods (Tue), New Home Sales (Tue), GDP (Thu)

International: China's Still Stumbling Economic Momentum

• China's economy started 2022 on a reasonable note as Q1 GDP rose 1.3% quarter-over-quarter, with manufacturing activity holding up quite well and services activity somewhat softer. However, March retail sales fell particularly sharply, while the ongoing impact of COVID lockdowns suggests April activity data could be even weaker. We forecast Chinese GDP growth of 4.9% for full-year 2022, but see the risk around that outlook as tilted to the downside.
• Next week: Australia CPI (Wed), Sweden Policy Rate (Thu), Eurozone CPI (Fri)

Credit Market Insights: Student Loan Developments Are a Boost to Young Adult Balance Sheets

• On Tuesday, the Department of Education announced another policy designed to bring student loan borrowers closer to debt forgiveness and ease their ability to pay off debts, affecting an estimated 3.6 million borrowers.

Topic of the Week: The Beige Book Paints a Clouded Outlook

• The Fed's Beige Book, released eight times per year, qualitatively reports on regional economic conditions. Although activity was generally solid over the survey period, this week's report underscores a growing sense of uncertainty about the economy's path in the coming months.

Summary

United States: Inflation Hits Hard in March

• This week's U.S. economic data were led by the largest monthly increase in the Consumer Price Index (CPI) since September 2005. The squeeze on households' from skyrocketing prices for necessities is very real and was evident in this week's retail sales data. However, underneath the surface there are signs that pandemic-related inflation is beginning to ease.
• Next week: Housing Starts (Tue), Existing Home Sales (Wed), Leading Economic Index (Thu)

International: U.K. Inflation Soars While Growth Slows

• Recent economic data from the United Kingdom reflected the global trend of higher inflation and slowing growth. The U.K.'s March CPI data release showed inflation pressures surged even higher last month. Headline CPI Inflation is now at a 30-year high, quickening more than expected to 7% year-over-year.
• Next week: China GDP (Mon), South Africa CPI (Wed), Eurozone PMIs (Fri)

Interest Rate Watch: Foreign Central Banks Shifting into Tightening Mode

• Not only did the Bank of Canada hike rates by 50 bps this week, but some other foreign central banks have also taken their policy rates higher in recent weeks. We expect that the Federal Reserve will tighten policy more than most other major central banks, with the possible exception of the Bank of Canada, which should continue to support the value of the U.S. dollar against most major foreign currencies.

Topic of the Week: Factors to Consider for a Net Zero Carbon Economy

• If corporations are to achieve net zero greenhouse gas emissions by 2050, there will be many economic impacts. Our recent report contextualizes the current state of greenhouse gas emissions and considers the larger economic implications of a transition to a net zero carbon future.

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Summary

United States: Minutes Put All Eyes on the Fed, but Economic Activity Remains Strong

• In an otherwise calm week of data, Wednesday's release of the FOMC minutes stirred things up as they showed committee members agreeing that elevated inflation and the tight labor market warrant balance sheet reduction to start soon. The minutes also stressed that current economic indicators point to strong activity, which was affirmed by the robust domestic demand that drove the ISM services index higher in March and kept the February trade balance at a record deficit.
• Next week: CPI (Tuesday), Retail Sales (Thursday), Industrial Production (Friday)

International: Commodity Price Spike Keeps Latam Inflation Elevated

• In our view, one of the regions that is most at risk to elevated commodity prices is Latin America. This week, we received evidence that inflation is indeed moving higher as a result of the push higher in commodity prices. Furthermore, the Canadian economy continues to demonstrate a robust recovery from the COVID pandemic.
• Next week: India CPI (Tuesday), Bank of Canada (Wednesday), European Central Bank (Thursday)

Interest Rate Watch: Balance Sheet Runoff Takes Shape

• The minutes of the March FOMC meeting released this week signaled the committee is likely to begin balance sheet reduction in May. Monthly caps for Treasury and MBS runoff are likely to reach $60B and $35B, respectively, and be phased in over just three months. The expedited timeline helped the yield curve steepen.

Credit Market Insights: Consumer Credit Expands in February

• The Federal Reserve Board reported that consumer credit increased at an annualized rate of 11.3% in February, with revolving credit leading the way, increasing 20.7%.

Topic of the Week: Last Week's Positive Russia and Ukraine Headlines Appear to Be a False Start

• Toward the end of last week, headlines suggested the Russia-Ukraine conflict may have reached a turning point. While reports suggest the Russian military is indeed withdrawing from Kyiv, Russian troops seem to be reinforcing their positions in other areas of Ukraine in an effort to establish stronger control.

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Summary

United States: Soaring Price Gauges Turn Up the Pressure on the Fed

• The Fed's difficult job got harder this week. Its preferred inflation gauge set another fresh 40-year record high, while the ISM prices paid measure shot up 11.5 points to 87.1. Payrolls increased 431K in March with steep upward revisions that lifted the past two months' gains, but personal income is not quite keeping pace with price increases. Small wonder, the yield curve temporarily inverted, a sign the bond market is losing faith in a soft landing.
• Next week: Trade Balance (Tue.), ISM Services (Tue.), FOMC Meeting Minutes (Wed.)

International: Eurozone Inflation Continues to Accelerate

• Eurozone March CPI inflation quickened more than expected to 7.5% year-over-year, driven by higher energy prices, with other price gains more modest. Still, the overall rate of inflation should see a timely move by the European Central Bank to less accommodative monetary policy despite a mixed growth outlook. Sentiment surveys from China and Japan were soft in tone, suggesting subdued growth from those economies during the first quarter.
• Next week: Mexico CPI (Thu.), Brazil CPI (Fri.), Canadian Employment (Fri.)

Credit Market Insights: Mortgage Rates Accelerate in March as Homebuyers Rush to Lock In

• Thirty-year mortgage rates reached 4.67% this week, the highest level in over three years. The quarter-of-a-percent increase from last week's 4.42% reading has 30-year mortgage rates on a breakneck pace to reach the 5% mark, a level not seen since February 2011. The white-hot housing market, although resilient, has not been entirely immune to the effects of rising mortgage rates.

Topic of the Week: Russia-Europe Gas Standoff Puts the Pressure on American Producers

• The economic fallout from Russia's invasion of Ukraine continued this week with Putin targeting the EU's heavy dependence on Russian energy sources. President Biden has committed to ramping up U.S. production to cover the gap and released a historic 180 million barrels of oil to help lower domestic prices, but capacity constraints and soaring domestic inflation present headwinds.

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United States: From factories to construction sites, supply shortages slow activity

Economic reports this week for both manufacturing and homebuilding shared two main themes: disappointing headline numbers, but plenty of backlogs for future work. Whether it is new homes or durable goods, the biggest clog in the production pipeline continues to be supply shortages, and it is increasingly evident that no part of the economy is spared from their pernicious effects.

Next week: Personal Income & Spending (Thurs), Employment (Fri), ISM Manufacturing (Fri).

International: U.K inflation soars to a 30-year high

In the context of elevated global price pressures, inflation in the United Kingdom is showing no signs of slowing down anytime soon. The February CPI surprised to the upside, rising 6.2% year-over-year, as higher prices for energy and commodities have started to reverberate throughout the economy to affect prices more broadly.

Next week: China PMIs (Thurs), Japan Tankan Survey (Fri), Eurozone CPI (Fri).

Interest rate watch: Interest rate volatility near a decade-high

The roller coaster ride for U.S. interest rates continued this week. By at least one measure, interest rate volatility is currently well above its average over the past decade and is nearing the highs reached during the peak of the COVID crisis in March 2020.

Credit market insights: Looking back at 2021 with the distributional financial accounts

The Federal Reserve's Distributional Financial Accounts was released for the fourth quarter of 2021, giving us more information on the state of households across diverse segments of the American population. Across the socioeconomic spectrum, household balance sheets have been bolstered since the onset of the pandemic, with growth particularly concentrated at the lowest and highest ends of household wealth.

Topic of the week: Prices keep pumping up at the pump

Gas prices reached record highs during the first weeks of March, raising concerns about the potential implications for consumer spending. It's a predictable pivot, as a sudden price increase in a product that most households cannot do without has historically been associated with wilting consumer sentiment.

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Summary

United States: Significant Monetary Policy Tightening Ahead

• In a full week of economic data, Wednesday's FOMC meeting took center stage. FOMC officials lifted the target range for the federal funds rate by 25 bps. Meanwhile, data on retail sales, industrial production and housing underscored a similar backdrop across the economy—price pressure remains hot and supply is still hard to come by.
• Next week: New Home Sales (Tues), Durable Goods (Wed)

International: G10 and EM Central Banks Continue Hiking

• International central banks were quite active this week. In the G10, the Bank of England (BoE) opted to lift interest rates another 25 bps and take its main policy rate to 0.75%. While the decision to raise rates was largely expected, the details surrounding the decision were a bit of a surprise and were interpreted as relatively dovish. In the emerging markets, the Brazilian Central Bank opted to lift the Selic Rate 100 bps and take the main policy rate to 11.75%.
• Next week: South Africa CPI (Wed), Eurozone PMIs (Thurs), Central Bank of Mexico (Thurs)

Interest Rate Watch: FOMC Sends a Hawkish Signal

• As was widely expected, the Federal Open Market Committee (FOMC) decided to raise rates by 25 bps at its meeting on March 16. But the marked upward shift in the so-called “dot plot” indicates that most committee members now believe that a more aggressive pace of monetary tightening will be appropriate this year than they did just a few months ago.

Topic of the Week: Russia's Invasion of Ukraine Highlights Lagging Domestic Oil Production

• One of the economic consequences of Russia's invasion of Ukraine has been higher oil prices. Domestic crude oil production in 2021 was roughly 1.0% below the 11.3 million barrels per day averaged in 2020 and 9.0% below the 12.3 million barrels per day average registered in 2019 before the worldwide dropoff in global energy demand.

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